The terms being applied-by the media, by politicians, by economists-to President Reagan's economic program, and most particularly to the tax-cutting…
The terms being applied—by the media, by politicians, by economists—to President Reagan’s economic program, and most particularly to the tax-cutting aspect of this program, are “bold,” “revolutionary,” “a risky experiment,” and so on. Clearly, a great many people are nervous about “supply-side” economics, and seem to have difficulty understanding its rationale. This is quite odd. For there is nothing really bold, or revolutionary, or experimental about this program. Nor is it at all difficult to understand.
Indeed, the trouble with the thing we call supply-side economics is that it is just too simple, too easy to understand. Accustomed as we are to the increasing complexity of the natural sciences, and the occult jargon of the social sciences, we are inclined to be suspicious of transparent simplicity, which we are likely to equate with naiveté or wishful thinking. The average person, listening to an exposition of supply-side economics, will nod his head at every point—but, after it is done, will remain incredulous: if it is that obvious, what is the fuss and controversy all about? The average economist, on the other hand, is only too likely to be indignant, outraged, and contemptuously dismissive: what is the point of his hard-won expertise in sophisticated economic theory if economic policy can be reduced to such plain terms?
It must be said that the term itself, “supply-side economics,” may be a source of initial confusion. It originates in deliberate contrast to the prevailing Keynesian approach, which emphasizes the need for government to manage and manipulate-through fiscal and monetary policies—aggregate demand so as to maintain full employment. Supply-side economists say government cannot really do this, no matter how many clever economists it hires, but that if business enterprise is permitted to function with a minimum of interference, it will invest and innovate, so as to create the requisite demand for the goods it produces.
There is certainly a difference in perspective here. Supply-side economists look at the economy from ground level, as it were—i.e., from the point of view of the entrepreneurs and investors who are identified as the prime movers. Keynesian economists look at the economy from above—from the standpoint of a government that is a deus ex machina, and which, in its omniscience, intervenes discreetly to preserve a harmonious economic universe. But it is wrong to infer that we live in a Manichean world in which Supply and Demand are continually at odds, so that we always are having to declare allegiance to one as against the other. They are, rather, opposite sides of the same coin, coexisting of necessity, and there can be no question of choosing between them.
More precisely, it is absurd economically to think in terms of such a choice. Beyond a certain point, a tax on production becomes a tax on consumption—the goods become too expensive and demand falls. Similarly, beyond a certain point a tax on consumption becomes a tax on production—the decrease in demand inhibits supply. Shifting taxes from the one to the other may provide marginal benefits on occasion. But a tax on commercial transactions and economic activity is always a tax on both production and consumption.
When, however, one moves from a purely analytical-economic mode of thought to a political-ideological one—when, in short, one moves from economic analysis to economic policy—then the difference in perspective has significant implications. Supply-side economics naturally gives rise to an emhasis on growth, not redistribution. It aims at improving everyone’s economic circumstances over time, but not necessarily in the same degree or in the same period of time. The aggregate demand created by economic activity, as seen from the supply-side, is indifferent to the issue of equality. Its bias is consequently in favor of a free market for economic activity, because this provides the most powerful economic incentives for investment, innovation, and growth. Those, on the other hand, for whom economic equality is at least as important as economic growth will always want to see government “restructure” this aggregate demand and will be indifferent to the issue of economic incentives.
However, there is another—incidental but important—source of controversy which has already been referred to, and that is the threat that supply-side economics represents to the economics profession as at present constituted. There can be little doubt that the nature of the controversy would be a lot clearer, and we would all be less befuddled, if it were not for the fact that so many distinguished economists are publicly accusing supply-side economics of being inconsistent with the principles of economic science as these are taught in graduate school and incarnated in, say, articles in the American Economic Review. To make matters worse, the accusation has a lot of truth in it, which is why so much of the writing in favor of supply-side economics originates outside the academic universe.
Thus one cannot understand the controversy over supply-side economics without paying some attention to the condition of the economics profession and to its vested interests, both intellectual and material. This condition is, at the moment, painfully ambiguous.
For more than three decades, we have all been looking to our best economists for guidance on economic policy. To that end we even established, after World War II, an extraordinary institution called the Council of Economic Advisers: three economists, with staff, who are supposed to provide the President and Congress with authoritative guidance on our economic problems, prospects, and policies. One must emphasize that word, “authoritative.” Those economists are not brought to Washington to offer their personal opinions, but rather to provide us with expert, scientific advice.
From what do their authority and expertise derive? They derive from the ambitious reconstruction of economic science after World War II in which the scheme of Keynesian macroeconomics was wedded to new, rigorous, analytical, largely mathematical techniques so as to provide, not a general, abstract model of the economic “system”—the 19th century gave us that—but a specific model of our economy at this particular time. Such a model consists of hundreds of complex correlations, spawned by econometric research, which relate one aspect of our national economic activity to another (or to many others), all fed into a computer which, having been properly programmed, can inform us as to where our economy has been coming from (to adopt a useful term from another part of the culture), where it is now, and whither it is drifting. It is this enterprise, which has come to be called “the neoclassical synthesis,” or “neo-Keynesian” economics, that has defined the nature of economic expertise, the acquisition of which is the dominant goal of graduate studies. And because a mastery of advanced mathematics has been so crucial to the enterprise, economists have secured the mantle of a true scientific elite—often incomprehensible, always indispensable.
It all went reasonably well for a couple of decades, though just what went reasonably well is itself one source of controversy. The neo-Keynesians will say that their sound analysis and good advice were at least partly responsible for our healthy economy from 1945 to 1970. Critics will argue that it was the existence of a healthy economy, created by businessmen and statesmen blissfully ignorant of sophisticated economic theories, that permitted economists to bask in a kind of reflected glory. (These critics point to the remarkable economic recoveries of Germany and Japan in a period when those nations had yet to learn of the neoclassical synthesis.)
But there can be no dispute over the fact that, beginning around 1970, it ceased going well and began to go badly. Not only were those annual forecasts too often very wide of the mark (especially with regard to inflation), but our economics establishment—for that is what it is, by now—could not explain the phenomonon of “stagflation,” a combination of inflation and lagging economic growth that neo-Keynesian theory regards as an impossibility. A note of desperation began to creep into the writings of the economists themselves. Professors of economics who had for years patiently explained to their students the folly (in peacetime) of wage and price and rent controls suddenly began to look upon them with a more sympathetic eye.
But for such a prescription one does not need economists. Ever since the beginnings of time, governments have been quite capable of thinking up such peremptory “solutions” to their economic problems all by themselves. The equivalent in politics is rule under martial law—no doubt necessary in extreme emergencies, but not a subject on which political theory or political philosophy has anything to say.
Simultaneously, and inevitably, a great many people began to take a hard and critical look at the presuppositions of neo-Keynesian economics—and, above all, at the model of the economy upon which it relies. That there are some anomalies in this model had always been conceded. Thus, since the wages of cleaning women are counted in the Gross National Product while the labor of housewives is not, one could easily achieve a huge increase in GNP—and presumably we would all be wealthier—if every housewife were to rent herself out to do her neighbor’s cleaning instead of doing her own cleaning herself. Similarly, there has always been a problem about “investment” by governments: the typical macroeconomics model is incapable of distinguishing among the building of roads, the building of warships, and the building of pyramids, all of which are counted simply as “expenditures,” though their economic status is obviously very disparate. And there are other difficulties with the model that many economists have been aware of, but which they also have thought could be regarded merely as a limitation of models per se, rather than a serious flaw in this particular model.
The new critique of the neo-Keynesian model, however, went far beyond such relatively familiar anomalies. Essentially it asserted that this kind of model, for all its complexity and sophistication—or one can even say because of its complexity and sophistication—reveals profound misconceptions about the nature of economic behavior, and especially about the kind of economic behavior that leads to economic growth.
It is important to realize that the conventional models are utterly blind to entrepreneurship and innovation (technological or otherwise). They can deal with quantifiable aggregates (like “investment”) but what cannot be quantified they ignore. Basically, theirs is a kind of Newtonian model of an economic system, with all the “forces” balancing each other out—except sometimes, when (for reasons still unclear) there is a mismatch between overall supply and overall demand, on which occasions the government, like some benign deity, pumps in the missing quantity of demand and restores the system to equilibrium. All specifically human motivations, intentions, aspirations are ignored. It is the results of past human behavior that the model blandly reflects, and always after the fact. In a sense, the revolt against neo-Keynesian economics is part of a larger revulsion, visible in other social sciences as well, against behaviorism as an adequate guide to human reality.
Economists attuned to the theories incarnated in such models cannot explain the “whys” of economic phenomena. They cannot, for instance, explain why economies grow, and why some economies grow faster than others. They try to come up with such an explanation, of course. By now the literature on “growth theory”—much of it mathematical and arcane—fills a good-sized library. But as our current textbooks on economic growth will admit, after hundreds of pages in which the various theories of diverse economists are adumbrated, there is nothing near a consensus about this issue.
Is that surprising? Only if we forget that economics is still a “social” science—the most methodologically rigorous of them all, to be sure, but still a social science—and not a “natural” science like physics or chemistry. We are hardly astonished, after all, if our political scientists fail to come up with a rigorous theory of political change, or if our sociologists fail to come up with a rigorous theory of social change, one which informs us precisely and authoritatively as to where our polity and society have been, where they are, where they are going. That is because we understand intuitively that any such theory, dealing with human beings, would require a degree of self-knowledge—of our present characters and personalities, from which we could make strong inferences as to our future motivations and actions—which is, by the nature of things, unavailable. (If we had any such complete self-knowledge we would be God—the Being in Whom thought and existence are one.) But economics, in striving to become an objective and positive science like physics, has promised us exactly this kind of self-knowledge, at least insofar as we are economic men and women. It has not been able to deliver on such a grandiose promise—has, in truth, reached a dead end in its efforts to do so.
In all fairness, one must say that not all economists have been coopted into this ambitious intellectual enterprise. The “neo-Austrians,” headed by Friedrich Hayek, have always been very skeptical of the utility of such mathematical models, and of the ability of economic analysis to provide the kind of exact, quantitative answers—how much? how long? when?—that politicians naturally yearn for (and the media always assume to be available). The neo-Marxists, too, more interested in the dynamics of economic change than in the static calibrations of economic phenomena at any one point in time, have made trenchant criticisms of the prevailing mode of economic theorizing. But the economics profession as a whole remains committed to the neoclassical or neo-Keynesian synthesis, and practically every course in macroeconomics introduces the student to it.
Supply-Side Economics may be viewed as a kind of “humanistic” rebellion against the mathematical-mechanical type of economic analysis in which economic aggregates, themselves dubious in nature, are related to one another so as to achieve a supposedly accurate series of snapshots of the economic universe we inhabit—something comparable to the universe we perceive when we go to a planetarium. Supply-side economics is uninterested in such a beautifully architected equilibrium because it believes this is the wrong paradigm for understanding an economy that consists of the purposive yet inconstant behavior of millions of individuals. Purposive, because economic behavior generally has as its goal the improvement of one’s economic conditions. Inconstant, because only the individual himself can define “improvement” for us, and his behavior will be profoundly influenced by all sorts of contingent factors—religious heritage, family relations, and, not least, the actions of government.
So far from being new or revolutionary, supply-side economics is frankly reactionary. “Back to Adam Smith” can be fairly designated as its motto. Not, however, in the sense of returning to some purist version of laisser-faire—all supply-siders agree (as would have Adam Smith, author of The Theory of Moral Sentiments) that, when a society is sufficiently affluent to provide a safety net for those unable to participate fully in the economy, we all have a moral obligation to see that such provision is made. “Back to Adam Smith” has to be understood, rather, as “Back to The Wealth of Nations” as the paradigm for economic reasoning—a book that makes sense to any literate person with some worldly experience (as distinct from book-learning which often inclines the reader toward otherworldliness). It may sound incredible, but supply-side economics really does believe that, if you want an economic education, The Wealth of Nations is still the best book to read. Indeed, the publicists of supply-side economics—Jude Wanniski in The Way the World Works and George Gilder in Wealth and Poverty—will readily allow that their books are but elaborations on themes by Adam Smith.
Nothing conveys more clearly the radically different perspectives on economic activity of supply-side and neo-Keynesian theory than the issue of incentives. It is an issue about which much confusion exists, and the confusion arises because contemporary economists are uneducated in the world of business, i.e., in the world of real economic activity. They are trained instead in the world of economic analysis, which stands in relation to business as academic political science stands in relation to politics. It is a distant relation, which easily warps one’s perspective.
Political scientists know that it is ambition which energizes the political system, but in their models—and yes, they have them—ambition is simply taken for granted, as a constant in magnitude and quality. Similarly, all economists know that incentives energize the economic system, but in their models they take incentives for granted, as a constant in magnitude and quality. In both cases, the reason is the same: since political ambition and economic incentives are essentially subjective and non-measurable essences, there is no place for them in an objective, quantified model.
Supply-side economics takes incentives—the innate human impulse to better one’s condition, as Adam Smith would put it—as the fons et origo of economic activity and, most important, of economic growth. We do indeed know of primitive cultures where that impulse is either weak or missing—and where economic growth is, as a consequence, also weak or missing. We know, too, of historical societies where the impulse has been frustrated by religious or political authorities—and where economic growth has been sporadic and cyclical. It is only with the emergence of a modern, commercial civilization, in which self-interested transactions in the marketplace are morally vindicated and politically tolerated, that the impulse to better one’s condition becomes translated into steady, progressive economic growth over decades and centuries.
Now, one way of frustrating that impulse, and economic growth as well, is to tax it. This accords with both common sense and common observation. As a matter of fact, it is a proposition that any economist, even the most devoted neo-Keynesian, will casually agree to. But when you suggest that one way of encouraging economic growth is to decrease the taxes on economic activity, many of these same economists will suddenly and inexplicably balk.
This balkiness is unquestionably ideological. These are people who are persuaded that the “collective goods” our taxes pay for—not only public works but also a more equal distribution of income—give us fair value, if not in purely economic terms. This is a perfectly sensible argument in defense of a tax system, but it is rarely made in the United States in 1981, presumably because it is not so evident that our taxes are actually getting us our “money’s worth” in those collective goods. Instead, these economists engage in the most curious kind of research to refute the notion that anyone’s incentive will be affected by a cut in taxes.
This research involves polling people, asking them whether they will work harder if their taxes are cut by 10 percent or 20 percent—or will they, perhaps, just consume more, by way of goods or leisure? Such studies often find that it makes little or no difference. And such studies are not worth the paper they are printed on—they are parodies of what economic analysis should be.
Who on earth ever said that, in a commercial society such as ours, we achieve economic growth by having to work harder? On the contrary the whole point of economic growth is that people should work less hard— but more productively. The human impulse to work less hard is just as strong as the human impulse to better one’s condition—always has been, one suspects always will be. It is the genius of market capitalism to satisfy both of these impulses at once by encouraging entrepreneurship, the incentive to innovate, among that minority of human beings who are, unlike most of us, peculiarly “economic activists.” The existence of such human beings—of entrepreneurs who, by innovating, make us all more productive without necessarily being less lazy1—is simply ignored in the atomistic poll data or the aggregate statistics that economists so solemnly analyze.
It does not matter in the least whether you or I will respond to a tax cut by sharpening our economic incentives. Some of us will, some of us will not. What does matter is that there is, out there, in the real business world as distinct from the academic world of the economists, a minority who will respond in this way—not necessarily the nicest people, not necessarily the smartest people, but the ones who, for whatever reason, relish economic success. For such people, the incentives to save and invest (and invest again) are extraordinarily powerful, and it is the incentives of these “economic activists” that are blunted and thwarted by a heavy tax burden. True, if we knew who they were in advance, we could cut only their taxes. But we only know who they are after the fact.
Still, taxes do have to be paid to acquire the necessary and desirable level of public services, and the question is immediately posed: how do we know, in fact, that taxes are too high? To put it another way: how do we know, since people do value many of those public services (if in varying measure), that our tax level is so high as to have a deleterious effect on economic incentives? This brings us to the so-called “Laffer curve,” a simple but powerful concept that is not in the least new—one can find an excellent summary of it by Ibn Khaldun in the 14th century.
All that the Laffer curve says is that, after a certain point, a tax—or the tax level as a whole—can become counterproductive. It is the point at which people experience taxes as an excessive and unfair burden—they are not getting their “money’s worth” for the tax they pay—with the result that their incentives to economic activity are adversely affected. The tax, in effect, represses economic activity to such an extent that, if it were substantially reduced, the government would end up collecting more in tax revenues, since there would be a lot more economic activity contributing to these tax revenues.
None of this is controversial; every economist would concede the general validity of the point; every citizen, from his own experience, can provide anecdotal confirmation. (Under Prohibition, when the tax on liquor was 100 percent, the government’s tax revenues were zero; when the tax was lowered, revenues sharply increased.) The question that academic critics of the Laffer curve raise is whether the American tax system has gone beyond the point of diminishing returns. “How do we know this?” they ask querulously. “Prove it,” they demand. To judge by last November’s election results, a clear majority of Americans are already convinced. But academic economists want academic proof—not, one suspects, because of their devotion to pure science, but because they would really prefer that government collect money and redistribute it more equally than see everyone improve his condition unequally through untrammeled economic growth.
The academic question as to whether we are beyond the point of diminishing returns in our tax system is unanswerable in strictly academic terms. It is a matter for political judgment, since it all depends on how people feel about the level of taxation. In wartime they feel one way; in peacetime, another. Yes, people always do grumble about taxes, at just about any level, but they don’t always do something about it. They don’t always make strenuous efforts to avoid or evade; they don’t always regard overtime (at time-and-a-half pay) with indifference or hostility. On the other hand, a housewife thinking of entering the job market will certainly think twice if her take-home pay barely covers the cost of the babysitter.
Though one cannot provide the kind of elegant, mathematical proof economists wish, there are in fact some persuasive signs that the American economy has gone too far up on the Laffer curve. One is our flourishing (because untaxed) underground economy—just how large it is, no one knows; but that it is very much larger today than yesterday, no one can deny. This underground economy is a new phenomenon in American society, and a most unhealthy one.
Another such sign is the tens of billions of dollars that seek and find legal tax shelters, investments that would not exist except for their relative tax advantage and which are therefore, by definition as it were, uneconomic. The volume of such commercial transactions, based on tax evasion and tax avoidance, is so enormous that even a slight shift, resulting from a lowering of tax rates, would bring substantial tax revenues to the Treasury. More precise than this, one cannot be; but in any case the demand for precise estimates of revenues gained and lost as a result of a decrease in tax rates is largely a smokescreen. The real opposition to the Laffer curve has less to do with economics than with liberal egalitarianism.
If the Laffer curve indicated that a cut only in tax rates for those in the lower-income bracket would pay for itself in recouped tax revenues, the demand for precision would vanish overnight. It cannot, however, show any such thing, since the major portion of our income tax is paid by people in upper-income brackets. (That is where the income is.) Does anyone really think that, even if we could prove beyond the shadow of a doubt that reducing the tax rates on more affluent Americans would result in their actually paying more in taxes than they now do, the reductions would become less controversial? There are many people, including quite a few economists, for whom it is more important to have a symbolic tax rate of 70 percent on very high incomes even if very few of the rich actually pay it, than to have an effective tax rate of, say, 40 percent which many of the rich would pay instead of fooling around with (often problematic) tax shelters.
But there are some thoughtful people who, having little quarrel with the general tenor of supply-side economics, nevertheless wonder whether it is appropriate in today’s inflationary economy. It is these people, genuinely concerned about inflation as our overriding problem, who feel that cuts in tax rates, for rich and poor alike, should wait upon our prior success in bringing down the rate of inflation. Since many of these critics of Kemp-Roth are themselves conservatives who supported Ronald Reagan—one thinks of Arthur Burns, Herbert Stein, and presumably Paul Volcker—and since their criticism is clearly not ideological, they are all the more influential, especially within the financial and business communities.
For such as these, it is not the tax cuts themselves that are “bold” and “radical” but the fact that they are being contemplated in a particular economic environment, i.e., one of an unprecedentedly high and sustained peacetime rate of inflation. And it is their disinterested concern over this issue which has served to fuel the criticisms of others who, while warning solemnly against “radical experimentation” in economic policy, have a different species of fish to fry.
The conservative case against reliance on supply-side economics in present circumstances cannot be lightly dismissed. It has a long and solid tradition of classical economic thought behind it. The only question is whether it is relevant to today’s environment, both economic and political.
That classical tradition has its own policy for coping with inflation. And, in truth, it is a policy that has always worked. It involves slowing down the rate of growth of the money supply to bring it in line with the growth in productivity. It also involves reducing governmental expenditures and bringing the budget into balance—this, to preclude the necessity of the Federal Reserve Board “monetizing” a deficit. Both of these measures, taken jointly, induce a recession, during which all of the distortions caused by inflation are “purged” from (or “wrung out of”) the economic system. After the recession has achieved this effect, a normal economic recovery may be expected to set in, and non-inflationary growth is once again possible.
That is the prescription, and it is a prescription for recession as a cure for inflation. This must be emphasized because, understandably enough, its advocates tend not to stress it. Only Hayek has been candid enough to say openly that we need a recession. Unfortunately, many of the politicians and businessmen who are swayed by these arguments do not, on their own, fully comprehend the implications of those arguments.
I have noted that these policies have in fact worked in the past. But would they work under the present, truly novel, circumstances? Can they even be tried under these circumstances? The answer to the first question is: probably not. The answer to the second is: certainly not.
One of the novel things about our present economic condition is not merely the endemic high inflation but the existence of a welfare state. This means that as the economy slows down, government expenditures actually increase, as the number of people who are now “in need” increases, and all sorts of welfare programs are triggered. The deficit, instead of going down, tends to go up—especially since tax revenues are also decreasing. As a result, whereas a relatively shallow and short-lived recession could do the trick in a pre-welfare state economy, what is now required is a deep and prolonged recession. (This is what Margaret Thatcher has discovered, to her dismay.) The economic costs of such a recession are so enormous as to make it a most questionable instrument of policy.
And the political costs are, to put it bluntly, intolerable. In this decade of the 1980’s, no administration, no political party—certainly not this Republican administration or the Republican party—can survive association with policies that bring on a long and severe recession. Once upon a time, in a different world, it was possible; it no longer is. All those politicians who are now, in innocence and good faith, advocating such policies would be the first to panic when the recession arrived, and would predictably opt for any scheme at hand, to deal with it.
That is why the Reagan administration has added a cut in tax rates, for business firms and individuals, to the traditional dual strategy of fighting inflation by slowing down the growth of the money supply and of government spending. It is the only possible answer to our predicament—encouraging economic growth so as to annul or at least ameliorate the recessionary effects of other anti-inflationary policies.
Some hostile economists have triumphantly pointed out that what we have here is a case of policies moving in opposite directions. Yes—and so does the policy of providing poor people with both welfare and job opportunities at the same time. Mixed solutions of this kind are as appropriate to economic policy as to social policy, and for the same reason: they are the only solutions that, under the circumstances, make practical sense.
Will it work? There are plenty of good reasons for thinking it will. True, it might temporarily increase the deficit and the national debt—but if the predicted growth eventually occurs, both deficit and debt will be imposed on a larger and stronger economy which can easily support them.
Moreover, we do have some solid historical evidence that the “feedback” effects of cuts in tax rates, in terms of increased tax revenues, are always larger than our economists and Treasury officials—whose econometric models cannot cope with such “feedback” effects—expect to be the case. This is what happened with the Kennedy-Johnson tax cuts which were as large, in terms of the 1964 economy, as the Reagan tax cuts are in the 1981 economy. There is no reason why it should not happen again.
One final point, often overlooked. Because of the increase in social-security taxes that has taken effect this year, and because of automatic “bracket creep” in the income tax resulting from inflation, we shall in effect be experiencing something like a $40-billion tax increase in 1981. No economist of any persuasion, no politician of any persuasion, no commentator (liberal or conservative) has been heard to say that such a tax increase would be good for the economy in its present condition. Yet many of these same people are volubly disturbed by a tax cut that will, in 1981, at best keep our tax burden in a steady state, and in 1982 only alleviate it modestly.
Somehow, the current condition of economic theory, combined with existing ideological trends, has given us a level of public discourse on economic policy that is disgracefully inadequate to our economic and political realities. No one, critical though he may be, seems even to feel the need to offer a practicable alternative to Reagan’s economic policy. One even suspects that many critics of supply-side economics want above all to see it fail, since its success would threaten their ideological investments.
1 We are, incidentally, too easily inclined to think of such innovation as being primarily technological. But Henry Ford did not invent the automobile, only the assembly line, on which auto workers worked less hard, over shorter hours, but more productively than had previously been the case.
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Ideology & Supply-Side Economics
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The Elon Musk problem.
No one has ever mistaken me for a business writer. Show me a balance sheet or quarterly report, and my eyes will glaze over. Bring up “chasing alpha” at the bar, and I’ll ask for the check and give you the old Irish goodbye. Business chatter—the kind you can’t help but overhear from young stockjobbers at the gym and bloaty middle managers on the Acela—bores me to tears. I’m especially allergic to the idea of “The Market” as an autonomous, anthropomorphic entity with a unitary will and mind of its own.
But even I can tell you that Elon Musk is imploding.
The latest omen came Friday when footage of the South African-born magnate smoking a fat marijuana blunt dropped online. The video is worth watching; the Guardian has the key bits from the 150-minute interview (do people really watch interviews this long?).
Rogan, whose fame has been a mystery to many yet is an inescapable fact of our online lives, offers the joint to Musk but is quick to add: “You probably can’t [smoke it] because of stockholders, right?” (On second thought, I think I know why Rogan is famous—because he knows how to push his subjects’ buttons.)
“I mean it’s legal, right?” Musk replies.
And so Elon Musk—the founder of an electric-car company worth $50 billion and a rocket company worth $20 billion—presses the blunt between his lips and takes a drag. He washes it down with a sip of whiskey on the rocks.
“I’m not a regular smoker of weed,” Musk says a few minutes later. “I almost never [smoke it]. I mean, it’s it’s—I don’t actually notice any effect.” His speech by now is noticeably more halting than it has been earlier in the interview. “I know a lot of people like weed, and that’s fine. But I don’t find that it is very good for productivity.”
The Market was not amused. News of two senior Tesla executives quitting their jobs broke soon after the interview appeared. Tesla shares slid 8 percent. On Twitter, where he competes with President Trump for the World Megalomaniac Award, Musk tweeted out his Rogan interview, adding: “I am a business magnet.” Perhaps he was still coming down.
These disasters follow the summer’s going-private fiasco. In early August, Musk claimed he had secured the vast funding needed to take his company private and then did a switcheroo. Tesla short-sellers, whom Musk constantly tries to show up, were vindicated. The Market got angry; shares slid.
“Moving forward, we will continue to focus on what matters most,” Musk wrote in a statement to investors two weeks later, “building products that people love and that make a difference to the shared future of life on Earth. We’ve shown that we can make great sustainable energy products, and we now need to show that we can be sustainably profitable.”
That apparently entails shooting the THC-laden breeze with Joe Rogan for two and a half hours.
The question now is: How did Musk ever get so big in the first place? There were many Tesla-skeptics, of course, chief among them those very short-sellers. They were onto something, perhaps because they sensed that a sound inventor-investor-executive would be more concerned with producing a reliable, profitable, non-subsidized automobile than with . . . showing up short-sellers. Even so, Tesla shares climbed and climbed. Even now, after Friday’s Harold and Kumar routine, the stock is trading north of $260.
Two explanations come to mind. The first is that, after Steve Jobs’s death, Wall Street and Silicon Valley types were seeking the next Eccentric Visionary to whom they could hitch their dreams. And Musk was straight out of central casting for Eccentric Visionary. Ending climate change. Colonizing Mars. Super-trains linking cities across vast distances. Everything seemed possible with him. Who knows, maybe the hopes were well-placed at one point, and the adulation went to the man’s head?
The second explanation, which needn’t be mutually exclusive with the first, is ideology. So much of Musk’s business reputation rested on his claims of solving climate change and other planetary crises that loom large in the minds of the Davos crowd. Musk embodied the ideological proposition that no modern problem eludes solution by noble-minded technocratic elites. The Market, it turns out, was as prone to magical thinking as any of the rest of us.
Clarification: News of the Tesla executives’ departure broke following Musk’s pot-smoking interview, but at least one of the departures had been finalized earlier this week.
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The course the West followed has been a disaster.
The West has squandered the last, best opportunity to rid the world of the criminal regime in Syria.
Damascus was designated a state sponsor of terrorism in 1979, and it has lived up to that title every year since. Syria’s descent into civil war presented several opportunities to dispense with the despot in Damascus and avert a crisis in the process, but they were all ignored. As I wrote for National Review, Syria is a case study in the perils of ideological non-interventionism. The results of the West’s over-reliance on covert action, outsourcing, and diplomacy in Syria is arguably the worst-case scenario.
Had Barack Obama not abandoned his infamous “red line” in 2013, the U.S. might have preserved the 100-year prohibition on the battlefield use of chemical weapons. The collapse of that taboo has been rapid and terrifying. In the years that followed, chemical arms have been regularly deployed in Syria, and rogue powers have been using complex nerve agents on foreign (even allied) soil in reckless state-sponsored assassination campaigns.
Ideological adherence to non-interventionism well after it had proven an untenable course of action allowed the flourishing of terrorist organizations. Some parties in the West with a political interest in isolationism deliberately confused these terrorist groups with secularist movements led by Assad regime defectors. In the years that followed, those moderate rebel factions were crushed or corrupted while Islamist terror networks, which provided a politically valuable contrast to the “civilized” regime in Damascus, were patronized and nurtured by Assad.
The incubation of terrorist organizations eventually necessitated the kind of American military intervention Obama had so desperately sought to avoid, but at a time and place not of America’s choosing and with a footprint too small to achieve any permanent solution to the crisis. All the while, a great human tide poured out from Syria in all directions, but especially into Europe. There, an influx of unassimilated migrants eroded the continent’s post-War political consensus and catalyzed the rise of illiberal populist factions.
Even as late as the summer of 2015, there was still time for the West to summon the courage to do what was necessary. In a stunning speech that summer, Assad himself admitted that Syrian forces suffered from “a lack of human resources” amid Western estimates that nearly half the 300,000-strong Syrian army had been killed, captured, or deserted. “Based on current trend lines, it is time to start thinking about a post-Assad Syria,” an intelligence source told the Washington Post’s David Ignatius. But Obama dithered still. Just a few short weeks later, Vladimir Putin, upon whom Obama relied to help him weasel out of his pledge to punish Assad for his crimes, intervened in Syria on Damascus’s behalf. That was when the greatest crimes began.
Russian intervention in Syria began not with attacks on “terrorists,” as Moscow claimed, but with attacks on covert CIA installations and arms depots; a dangerous campaign that continued well into the Trump era. The Syrian regime and its Iranian and Russian allies then embarked on a scorched-earth campaign. They bombed civilian neighborhoods and hospitals and maternity wards. They surrounded the liberated cities of Homs and Aleppo, barraging and starving their people into submission. They even targeted and destroyed a United Nations aid convey before it could relieve the famine imposed by Damascus. All the while, Moscow’s propagandists mocked reports of these atrocities, and the children who stumbled bloodied and ashen from the ruins of their homes were deemed crisis actors by Russian officials and their Western mouthpieces.
America’s strategic obligations in Syria did not diminish with Russian intervention. They increased, but so too did the danger. Early on, Russian forces concentrated not just on attacking Assad’s Western-backed enemies but on harassing NATO-aligned forces that were already operating in the Syrian theater. Russian warplanes harassed U.S. drones, painted allied assets with radar, conducted near-miss fly-bys of U.S. warships and airplanes in the region, and repeatedly violated Turkish airspace. This conduct was so reckless that, in November of 2015, NATO-allied Turkish anti-aircraft fire downed a Russian jet. On the ground, Moscow and Washington engaged in the kind of proxy fighting unseen since the collapse of the Soviet Union, as U.S.-manufactured armaments were routinely featured in rebel-made films of successful attacks on Russian tanks and APCs.
In the years that followed this intensely dangerous period, the Syrian state did not recover. Instead, Syrian forces withdrew to a narrow area along the coast and around the capital and left behind a vacuum that has been filled by competing great powers. Iran, Russia, Turkey, Jordan, Saudi Arabia, Qatar, the United Arab Emirates, Canada, the United Kingdom, France, Australia, and the United States, to say nothing of their proxy forces, are all competing to control and pacify portions of the country. Even if the terrorist threat is one day permanently neutralized in Syria—a prospect that today seems far off, considering these nations’ conflicting definition of what constitutes a terrorist—the state of competition among these powers ensures that the occupation of Syrian territory will continue for the foreseeable future.
And now, the final battle is upon the rebels. On Friday, hundreds of Syrians waving the “independence flag” poured into the streets of Idlib, the last of the country’s free cities, begging the international community to spare them from the onslaught that has already begun. The United Nations has warned that up to 800,000 people could be displaced in Damascus’s efforts to retake the rebel-held enclave, and the worst of the seven-year war’s humanitarian disasters may be yet to come.
Over the last two weeks, the United States has issued some ominous warnings. Senior American officials have begun telling reporters that the evidence is increasing of Damascus’s moving chemical munitions near the frontlines with the intent of using them on civilians. Trump administration officials announced in no uncertain terms that they would respond to another chemical attack with disproportionate force.
In response to these threats, Moscow deployed the biggest Russian naval taskforce on the Syrian coast since 2015. Simultaneously, Russia has warned of its intent to strike “militant” positions in the country’s Southwest, where U.S. soldiers routinely patrol. American forces are holding firm, for now, and the Pentagon insists that uniformed personnel are at liberty to defend themselves if they come under assault. If there is a conflict, it wouldn’t be the first time Americans and Russians have engaged in combat in Syria.
In February, Russian mercenaries and Syrian soldiers reinforcing columns of T-72 tanks and APCs armed with 125-millimeter guns engaged a position just east of the Euphrates River held by American Green Berets and Marines. The four-hour battle that ensued resulted in hundreds of Russian fatalities, but it may only have been a terrible sign of things to come.
Of course, a Western-led intervention in the Syrian conflict would have been accompanied by its own set of setbacks. What’s more, the political backlash and dysfunction that would have accompanied another difficult occupation in the Middle East perhaps presented policymakers with insurmountable obstacles. But the course the West followed instead has been a disaster.
The lessons of the Syrian civil war are clear: The U.S. cannot stay out of destabilizing conflicts in strategically valuable parts of the world, no matter how hard it tries. The humanitarian and political disasters that resulted from Western indifference to the Syrian plight is a grotesque crime that posterity will look upon with contempt. Finally, the failure to enforce prohibitions against chemical-weapons use on the battlefield has emboldened those who would use them recklessly. American soldiers will suffer the most in a world in which chemical warfare is the status quo of the battlefield of the future.
American interventionists are often asked by their opponents to reckon with the bloodshed and geopolitical instability their policies encourage. If only non-interventionists would do the same.
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And the demands of realpolitik.
Earlier this week, my housekeeper, Mary, arrived to work decked out in a bright red T-shirt emblazoned with a photo of Philippine President Rodrigo Duterte, who came to Israel last Sunday for a three-day official visit.
Mary was at the Knesset on Monday, one of several hundred Filipino workers among approximately 28,000 in Israel, enthusiastically cheering her strongman president.
I asked her what she thought of Duterte–a leader who makes President Trump seem eloquent and measured, by comparison–and I was taken aback by her effusive, unhesitating endorsement: “Oh,” she enthused, “he is a very good president! The best!”
“But,” I suggested, carefully, “he says and does some pretty extreme, crazy things. Does that concern you at all?”
“Oh, no!” she collapsed in laughter. “He doesn’t mean that. It’s just his style.”
Indeed, Duterte has “style.” Bragging of his intent to kill millions of Filipino drug addicts, and invoking Hitler and his genocidal rampage, approvingly, in this context; referring to President Obama as a “son of a whore”; boasting of his parsimony in keeping multiple mistresses available in low-end hotels; approving of sexually assaulting women, particularly attractive ones. And then there was the outburst during the Pope’s visit to the very Catholic Philippines in 2015 when Duterte called him a “son of a bitch” for causing a traffic jam while in Manila.
Mary is not a simple woman. She is university educated, hard-working, pleasant, and respectful. And whatever makes her overlook Duterte’s thuggish tendencies should interest us all, because there are many Marys the world over supporting populist leaders and governments. Mary admires Duterte’s strength of conviction in dealing with drug dealers, addicts, corruption and Islamic extremists.
Human rights activists and journalists, of course, see only a brute who visited Israel to shop for weapons and defense capabilities, which would be put to questionable use. Then again, Duterte is hardly the first and far from the only unsavory ruler to come shopping in Israel, America, or elsewhere, for arms.
Israel deftly managed the visit and optics. Whereas many were disgusted that the PM and President Rivlin gave Duterte an audience, according him a legitimacy and respect that is undeserved, their meetings were brief and remarks carefully calibrated.
In addition to acknowledging his personal gratitude to the Filipino caregiver who was a companion to his father in his final years, Bibi reminded us all of the enduring friendship the Philippines has shown Israel, and Jews, for decades. Prior to WWII, then president Manuel Quezon made available 10,000 visas as part of an “open door” policy to accommodate European Jewish refugees. Only 1,300 were used, ultimately, due to the Japanese invasion which closed off escape routes.
In 1947, the Philippines was the only Asian country to vote in support of the 1947 UN Partition Plan, providing critical support for the momentum building towards the creation and international acceptance of the Jewish state one year later. These are important, historical events about which Bibi, quite rightly, chose to remind us all.
I am no cheerleader of dictators and thugs, but I do wonder why the morality of many objectors to the Duterte visit is so selective. Israel (and all western nations) has relations and ties with many countries led by dictators and rulers far more brutal than the democratically elected Duterte.
Much ado has been made in recent months of Bibi’s meetings with a number of right-wing populists and, worse. Some link it to what they see as disturbing, anti-democratic tendencies in his own leadership of late. Others, myself included, would read it as a careful effort to maintain and cultivate as many international relationships as possible that may enhance Israel’s strategic and economic interests, particularly in this period of extreme global political, economic and institutional instability.
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The paradox of success.
The monthly jobs report from the Bureau of Labor Statistics released Friday morning shows that the economy continues to flourish. 201,000 new jobs were added last month, while the unemployment rate stayed steady at a very low 3.9 percent.
Unemployment rates for African-Americans and teenagers continued their decline to historic lows, while US factory activity was at a 14-year high and new unemployment claims at their lowest point since the 1960s. The long-term unemployed (those out of work for 27 weeks or longer) has fallen by 24 percent in the last year. The number of part-time workers who want full-time work has gone down by 16 percent over the last 12 months. Wages are rising at a faster pace than they have, a sign of a tightening jobs market.
Corporate profits are robust (thanks partly to the cut in the corporate income tax) and consumer spending has been rising. The GDP has been growing at a more than 4 percent rate in recent months. In short, the American economy has rarely been this good and certainly wasn’t during the long, sluggish recovery from the 2008-2009 recession under the Obama administration.
In an ordinary year, one would expect that with economic numbers this good, the party controlling both houses of Congress and the White House would be looking forward to doing well in the upcoming midterm election, even though the party holding the White House usually loses seats in midterms. But, of course, no year is an ordinary political year with Donald Trump in the White House and the Democratic Party moving ever more to the left.
November 6 will be an interesting night.
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We deserve better.
You could be forgiven for thinking that everyone active in American politics has lost their minds.
What we’re witnessing is not, however, collective madness. The political class in the United States has adapted to a constant atmosphere of high drama, and they’ve adopted the most theatrical poses possible if only to maintain the attention of their fickle audiences. What might look to dispassionate observers like mass hysteria is just overwrought performance art.
This week was a case study in our national insanity, which began aptly enough on Capitol Hill. There, confirmation hearings for Judge Brett Kavanaugh got underway, but Judge Kavanaugh’s presence was barely noticed. The hearings soon became a platform for some familiar grandstanding by members of the opposition party, but the over-acting to which the nation was privy was uniquely embarrassing.
New Jersey Senator Cory Booker chewed the scenery, as is his habit, by declaring himself Spartacus and demanding that he be made a “martyr” via expulsion from the Senate for releasing one of Kavanaugh’s emails to the public, supposedly in violation of Senate confidentiality rules. But there was no violation, said Bill Bruck, the private attorney who led the review of Kavanaugh’s former White House records in the Senate. “We cleared the documents last night shortly after Senator Booker’s staff asked us to,” he said in a statement. Perhaps by engaging in what he called “an act civil disobedience,” Booker was only following the lead of his colleague, Senator Sheldon Whitehouse, who declared the committee’s process illegitimate, thereby supposedly rendering the rules of the United States Senate unworthy of recognition.
Outside another congressional committee’s chamber, the crazy really ramped up to absurd proportions. Following a hearing on alleged bias in Silicon Valley, Senator Marco Rubio was confronted by the rabble-rousing conspiracy theorist Alex Jones, which rapidly devolved to the point that both Senator and agitator were soon threatening to fight one another. “I know you’ve got to cover them, but you give these guys way too much attention,” Rubio later told reporters. “We’re making crazy people superstars. So, we going to get crazier people.” He’s right.
The Trump era has provided the press with fertile soil in which a thousand manic flowers have bloomed.
Amplified by the president himself, Jones has become one of the right’s favorite grifters. Unfortunately, he’s in plentiful company. The press has discovered a sudden interest in conspiracy theorists like Jack Posobiec, Mike Cernovich, and Laura Loomer partly because they make for such compelling television but also because they’re willing to confirm the pro-Trump right’s most paranoid suspicions.
The “Resistance” has been a valuable vehicle for the unscrupulous and under-medicated. Congresswoman Maxine Waters has been feted in the press and in apolitical venues such as the MTV Movie Awards not despite but because of her penchant for radicalizing the left and feeding them fantasies about a coming anti-Trump putsch. Former British MP Louise Mensch, “D.C. technocrat” Eric Garland, and Teen Vogue columnist Lauren Duca spent most of 2017 basking in attention and praise from respectable quarters of the Washington political and media class. Their manifest unfitness for such elevated status somehow evaded drama addicts in mainstream political and media quarters.
And whether you’re pandering to the pro-Trump right or the anti-Trump left, there’s plenty of cash to go around for those who are willing to indoctrinate children or undermine the integrity of apolitical American institutions.
The week’s most hysterical moment belongs to the president and his aides—specifically, their reaction to an anonymous op-ed published by the New York Times purportedly revealing the existence of a cabal in the administration dedicated to thwarting the president’s worst impulses. Now, some have expressed perfectly reasonable reservations about the Times’s decision to publish an anonymous op-ed. Others have fretted about the pernicious effects this disclosure might have on the already mercurial president’s approach to governance. But lost in the over-the-top reactions this piece inspired among political observers is the hackneyed nature of the revelations it contained.
In sum, the author disclosed that many members of this Republican administration are movement conservatives dedicated to conservative policy prescriptions that are antithetical to the policies on which Trump campaigned. As such, they have often successfully lobbied the president to adopt their positions over his own preferences.
The admittedly dangerous “two-track presidency” has been observable for some time, and is the frequent subject of reporting and opinion. For example, the op-ed highlighted the discrepancy between Trump’s conciliatory rhetoric toward Russia and his administration’s admirably hawkish posture, which has become such a glaringly conspicuous feature of his presidency that Trump has recently begun trumpeting his contradictory record as though it was a unique species of competence. There’s nothing wrong with taking issue with the way in which the obvious was stated in this op-ed, but the statement of the obvious should not itself be a source of special consternation.
But was it ever. The Drudge Report dubbed the author a “saboteur,” despite the op-ed failing to describe even one action that was taken on the part of this so-called “resistance” against the president’s expressed wishes. “Sedition,” former White House Aide Sebastian Gorka echoed. Sarah Huckabee Sanders attacked the anonymous columnist as a “coward.” The president himself pondered whether the op-ed constituted “treason” against the United States and demanded the Times “turn over” this “gutless” columnist to the proper authorities, whoever they are. This is certainly one way to refute the charge that Trump’s “impulsiveness results in half-baked, ill-informed and occasionally reckless decisions,” but it’s not a good one.
It’s hard to fault politicians and the press for selling drama. Banality doesn’t push papers, drive up advertising rates, or turn out the vote. At a time without an urgent crisis, when the economy is strong, and the fires abroad are relatively well-contained, it serves the political and media classes to turn up the temperature on mundanities and declare all precedents portentous. But radicalizing voters for such purposes is both trite and irresponsible. In America, healthy and productive politics is boring politics. And who would tune in for that?